Section 19U: Conversion of domestic mutual holding company into domestic stock corporation
Section 19U. (a) A domestic mutual holding company may convert into a domestic stock corporation pursuant to a plan of conversion which complies with subsection (b).
(b)(1) The commissioner shall hold a public hearing upon the fairness of the terms and conditions of the plan of conversion, the reasons and purposes for the conversion of the mutual holding company, and whether the conversion is in the best interest of said mutual holding company and is fair and equitable to its members, and not detrimental to the insuring public. Notice stating the time, place and purpose of the hearing shall be mailed by the converting mutual holding company to each policyholder, at his last known address as shown on the records of the converting mutual holding company; except in instances where mailing of notice is not feasible as determined by the commissioner. Such notice shall be mailed at least 60 days prior to the date of the hearing. Such notice shall be preceded or accompanied by a true and complete copy of the plan, or by a summary thereof approved by the commissioner, and such other explanatory information as the commissioner shall approve or require. In addition, the converting mutual holding company shall give notice of the time, place and purpose of the hearing by publication in three newspapers of general circulation, one in the county in which the converting mutual holding company has its principal office and two in other cities within or without the state approved by the commissioner; such newspaper publications shall be made not less than 15 days nor more than 60 days prior to the hearing, and shall be in a form approved by the commissioner. The directors, officers, employees and policyholders of the reorganized insurer shall have the right to appear and be heard at such hearing.
(2) The commissioner shall, after the public hearing required by paragraph (1), approve the plan of conversion if he finds that: the proposed conversion is in the best interests of the converting mutual holding company; the plan is fair and equitable to the policyholders of the reorganized insurer; the plan provides for the enhancement of the operations of the converting mutual holding company; the plan will not substantially lessen competition in any line of insurance business and, when completed, complies with the requirements of sections 19F to 19W, inclusive. The commissioner shall approve or disapprove the plan in writing on or before 60 days after the conclusion of the public hearing required by paragraph (1). If approval is denied, the denial shall be in writing setting forth a statement of the reasons therefor and the converting mutual holding company shall have the right to a hearing before the commissioner within 30 days of the date of such denial.
(3) A proposal to approve the plan of conversion shall be submitted to the members of the mutual holding company. Such plan shall be approved by vote of not less than two-thirds of the votes of the members of the converting mutual holding company voting thereon in person, by proxy or by mail at a meeting of members called for that purpose. Notice stating the date, time and place of the meeting shall be mailed by the mutual holding company to the policyholders of the reorganized insurer at their last known addresses as shown on the records of the reorganizing insurer, except in instances where mailing of notice is not feasible as determined by the commissioner, and notice given to the holder of a policy shall constitute notice to the member of the mutual holding company whose membership arises from the policy. Such notice shall be mailed at least 30 days prior to the meeting. Such notice may be combined with the notice of public hearing as mailed to policyholders pursuant to paragraph (1). Such notice shall be preceded or accompanied by a true and complete copy of the plan, or by a summary thereof approved by the commissioner, and such other explanatory information as the commissioner shall approve or require. Each member entitled to vote on the plan of conversion shall vote by written ballot cast in person or by mail or by proxy agent or agents duly appointed by the member.
The commissioner shall have the power to supervise and direct and prescribe the rules governing the procedure for the conduct of voting on the proposal to such extent, consistent with the provisions of sections 19F to 19W, inclusive, as he deems necessary to insure a fair and accurate vote; such powers shall include, but not be limited to, power to supervise and regulate (i) the determination of members entitled to notice of and to vote on the proposal; (ii) the giving of notice of the proposal; (iii) the receipt, custody, safeguarding, verification and tabulation of proxy forms and ballots; and (iv) the resolution of disputes.
(4) Upon approval pursuant to this section, the conversion shall be effective as of the date specified in the plan. Upon the effective date of the plan of conversion, all membership interests and equity rights in the mutual holding company shall be extinguished. On and after such date, all the rights, franchises and interests of the mutual holding company in and to every species of property shall be vested in the converted holding company without any deed or transfer and the converted holding company shall succeed to all the obligations and liabilities of the mutual holding company.
(5) In exchange for equity rights in the mutual holding company, such plan shall provide for appropriate consideration. Said consideration shall be equal, in the aggregate, to the value of the entire capital and surplus of the mutual holding company excluding any funds required to be held in segregated accounts by federal statute and shall be determinable under a fair and reasonable formula approved by the commissioner. If the plan of conversion provides for the mutual holding company to continue as a surviving corporation after the conversion, then consideration to the policyholders shall be in the form of stock, cash or other such form of compensation as is approved by the commissioner. Distribution of all of the stock of the former mutual holding company to eligible policyholders, or in the case of certain eligible policyholders other consideration of equivalent value, shall constitute appropriate consideration under sections 19F to 19W, inclusive. If the plan of conversion does not provide for the mutual holding company to continue as a surviving corporation after the conversion, then consideration payable shall be in such form as is otherwise permitted in this section shall be distributed to eligible policyholders.
(6) Such plan shall give each person holding equity rights a preemptive right to acquire his proportionate part of all of the proposed capital stock of the converted holding company, and to apply upon the purchase thereof the amount of their consideration, as determined under paragraph (5), except that the plan may provide that such person may not purchase or receive stock pursuant to this section if it has an aggregate subscription price of $2,000 or less and that such preemptive right will not apply to such persons who reside in jurisdictions in which the issuance of stock is impossible, would involve unreasonable delay or would require the converting company to incur unreasonable costs; provided, however, that any such person shall receive their consideration in cash; and, provided further, in the instance of a plan of conversion in which the appropriate consideration received by persons under paragraph (5) is stock of a corporation in a transaction authorized under this section, or other consideration as approved by the commissioner or, without limiting the generality of the foregoing, as permitted under this paragraph, the plan of conversion shall provide either (i) that no member or person holding equity rights shall have any preemptive right to acquire any of the proposed capital stock of the converted holding company or of the proposed parent or other corporation, or (ii) for preemptive rights on such other terms as approved by the commissioner.
Notwithstanding the foregoing, the commissioner shall have the authority to disapprove such plan in accordance with the provisions of paragraph (2).
(7) The person eligible to participate in the distribution of consideration and to purchase stock shall be the person whose name appears on the conversion date on the mutual holding company's records as a person holding equity rights on both December 31 immediately preceding the conversion date and the date the mutual holding company's board of directors first voted to convert to stock form.
(8) Shares are to be offered to persons holding equity rights at a price not greater than to be thereafter offered under the plan of conversion to others.
(9) Such plan shall provide for payment to each person holding equity rights of consideration which may consist of cash, securities, a certificate of contribution, additional insurance under policies issued by a reorganized insurer or other consideration or any combination of such forms of consideration.
(10) The commissioner shall find that the mutual holding company's management has not, through reduction in volume of new business written or cancellation by a reorganized insurer, or through any other means, sought to reduce, limit or affect the number or identity of the mutual holding company's members or persons holding equity rights to be entitled to participate in such plan or to otherwise secure for the individuals comprising management any unfair advantage through such plan.
(11) Nothing in this section shall be deemed to prohibit the inclusion in the plan of conversion of provisions under which the individuals comprising the management and employee group of the mutual holding company, reorganized insurer or an intermediate stock holding company shall be entitled to purchase for cash at the same price as offered to persons holding equity rights, shares of stock not taken by persons holding equity rights on the preemptive offering to persons holding equity rights, in accordance with such reasonable classification of such individuals as may be included in the plan of conversion and approved by the commissioner.
(12) The plan of conversion may also include provisions restricting the ability of any person or persons acting in concert from directly or indirectly offering to acquire or acquiring the beneficial ownership of 10 per cent or more of any class of voting stock of the converted holding company or the parent corporation or other corporation.
(13) No director, officer, agent or employee of the mutual holding company, or any other person, shall receive any fee, commission or other valuable consideration whatsoever, other than his usual regular salary and compensation, for in any manner aiding, promoting or assisting in such conversion, except as set forth in the plan of conversion approved by the commissioner. This provision shall not be deemed to prohibit the payment of reasonable fees and compensation to attorneys at law, accountants and actuaries for services performed in the independent practice of their professions, even though they may be directors of the mutual holding company.
(14) For the purposes of determining whether a plan of conversion meets the requirements of this section and any other relevant provisions of any general or special law, the commissioner may employ staff personnel and private consultants. All reasonable costs related to the review of a plan of conversion, including costs attributable to the use of staff personnel, shall be borne by the mutual holding company making the filing.